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Financial Guide

Home loan repayment can now stretch to 50 years

UNITED Overseas Bank (UOB) has introduced a home loan that spans half a century - likely the longest-term loan available here.

UOB introduced this longer loan duration as more customers have been requesting for such loans.

However, these loans come with conditions. 'This type of loan is applicable to private residential and HDB loans only,' said Ms Chia Siew Cheng, UOB's head of secured loans and personal financial services. As well, borrowers above a certain age are not eligible, but UOB declined to say what the cut-off age is.

And if the property is leasehold, it needs to have at least 35 years left on the lease at the end of the 50-year loan.

Ms Chia noted that the loan has its pros and cons. Having a longer term 'will result in a smaller monthly loan instalment and will be easier on monthly cashflows. However a longer repayment period also means that more interest will be payable'.

Financial adviser Damian Pang warned that by taking on such a long-term loan, the homeowner will be servicing the loan long into his retirement years.

A quick check with other banks here found that the longest loan term was 40 years.

At OCBC, for example, the maximum loan period for private and HDB homes is 40 years, or up to the age of 75 years, whichever is earlier.

At HSBC, customers with at least $200,000 with the bank can get loans of up to 40 years. Others can receive loans of up to 35 years, at the most.

Even then, most customers opt for loans of just 30 years, said Mr Harmander Mahal, HSBC Singapore's head of customer value management. Only about 1 per cent of customers take up the 40-year loans.

Longer term loans require the borrower to pay a smaller sum each month. This gives consumers the confidence to purchase new homes, and could help to keep prices buoyant, said Mr Ku Swee Yong, the chief executive of International Property Advisor. 'It improves affordability, which means it is good for the housing market in general, not just developers.'

Homeowner Edward Ti, 28, said he would certainly take up a 50-year loan for an investment property. 'I would take a 50-year loan if interest rates are low. I would think that it is more efficient to use the money saved from the monthly mortgages to do something else.'

If a borrower takes out a 50-year loan for $1 million at an interest rate of 1.7 per cent, he would have to pay about $2,475 monthly for his mortgage, compared with $3,548 if the loan ran for 30 years.

This is assuming a period of low interest rates. However, if interest rates rose, say to 3 per cent, the $1 million 50-year loan would mean monthly repayments of $3,220.